12 November 2015

How tech innovation is transforming the healthcare industry

By Charles Stodart
Zurich Investments Specialist

Health care stocks have been hitting the headlines recently for all the wrong reasons.  A few weeks ago, Presidential hopeful Hillary Clinton tweeted about ‘outrageous price gouging’ in the specialty drug market. This had the effect of putting immediate pressure on several high profile biotech companies, and subsequently weighed on the performance of the broader sector. Categorised as ‘high-flying’ previously, the health care sector has been amongst the worst performers over the last three months.

Clinton’s tweet was not without its merits. After all, it highlighted an overnight price hike for a particular treatment that was over 55 times its original price. Further scrutiny of the industry has also identified some other apparently opportunistic behaviour which has led to increased volatility in the sector.

But looking through this recent volatility, we’ve seen some incredible scientific breakthroughs in new therapies over the last few years, meaning that the sector should continue to be an attractive investment opportunity in the longer term.

Technological innovation in DNA sequencing and advances in genome biology have led to a number of breakthrough cancer treatments. This has significantly lifted the R&D productivity of the industry. Immuno-oncology is one area that represents a major paradigm shift in the treatment of cancer.  Immunotherapy drugs harness the immune system itself to fight off cancer cells and have led to some remarkable results with patient responses; lifting survival rates significantly across a number of tumour types.  The market for immuno-oncology treatment is expected to exceed $25 billion.

Bristol-Myers Squibb has already enjoyed success with treatments for late stage melanoma and lung cancer. Other majors such as Merck, Roche and AstraZeneca continue to invest their R&D across a range of cancer types. As the science develops from these first generation treatments, it’s possible that future patients could experience multi-year survival rates.

Technological advances and regulatory changes are also proving to be major drivers of company fundamentals within the sector. Investors who can identify these longer-term developments will be able to tap into their investment potential over the long term.

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